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U.K. inflation stuck at highest level since May

File photo of a market stall holder standing under bags with different prices on Oxford Street in London.


British inflation unexpectedly held steady for the fourth month in a row in January, giving little respite to consumers facing the highest prices since last May, official data showed on Tuesday.

Annual consumer price inflation stayed at 2.7 per cent last month, the Office for National Statistics said, slightly below the 2.8 per cent median forecast in a Reuters poll of economists.

It is the first time inflation has remained unchanged for four months since records began in 1996, the ONS said.

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A let-up in the pressure on the strained budgets of British households may still be some way off. Some economists predict inflation will touch 3 per cent in coming months.

"In terms of the consumer, it certainly means that the squeeze on real spending power remains very much in place but that's mitigated to an extent by employment having held up relatively well," said Victoria Clarke, an economist at Investec.

Financial markets were little changed by the data.

The Bank of England warned last week that inflation might remain above its 2 per cent target for the next two years. It will publish its latest quarterly economic forecasts on Wednesday.

The biggest upward contribution to the annual rate in January came from an 8.5-per-cent rise in alcohol and tobacco prices. The main downward pressure came from slower rises in the prices of miscellaneous goods and services, such as money transfer fees, as well as clothes and shoes.

The ONS also said house prices rose 3.3 per cent on the year in December – the largest increase since November 2010. In November 2012 they rose 2.2 per cent.

The Bank last year launched a scheme to encourage lending by banks, the impact of which has so far been felt most in mortgages.

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Persistently high inflation has restrained consumer spending – traditionally a key driver of economic growth in Britain – in recent years. It has also limited the scope for more government bond-buying by the central bank, part of its support for the economy.

Separate data released by the ONS showed that factory-gate inflation rose 2.0 per cent on the year in January, the slowest since July. Input prices climbed 1.8 per cent, the fastest since March last year and pushed up by domestic food prices, possibly a reflection of bad weather which hurt British crops.

Earlier this month, the British Retail Consortium found that shop prices inched up in January at their slowest annual pace in more than three years, driven by cheaper clothing and electrical goods.

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